tv Bloomberg West Bloomberg July 30, 2014 11:00pm-12:01am EDT
>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover innovation, technology, and the future of business. i'm emily chang. first a check of your bloomberg top headlines. yelp reported a profit for the first time as a public company. yelp reported $2.7 million in net income. sales rose 61%. more small businesses advertised on its website and mobile app. average monthly visitors rose 27%. amc networks is in talks to acquire a 50% stake in bbc america. the deal would allow bbc america world wide to keep control of
the channel while cutting overhead. bbc america is available in 80 million u.s. households and airs shows like "the musketeers." twitter shares soared 20% today following a strong earnings report, its biggest daily gain since the day after its ipo. the ceo says changes made to the service are working. he says revenue rose mostly because users spent more time on twitter, and the audience for tweets beyond twitter itself is more than twice its active user base. and edward snowden temporary asylum in russia is set to expire tomorrow. he has requested an extension. coming up at the bottom of the hour, an in-depth look at how snowden's revelations about federal government spying have impacted business, government, and your privacy rights. first, to our lead story of the day. amazon make its objectives public in its dispute with a
book group over e-book prices. it has been going on since may. its key objective is to lower e-book prices. amazon argues that if e-books were priced at $9.99 instead of $14.99, there would be more sales. amazon also indicated it is willing to except the same share of total revenue if hachette agrees to lower the price on most books. amazon rights, while we believe 35% to go to the author, 35% to hachette, the way this work is we would send 70% of the total revenue to hachette and they would decide how much to share with the author. joining us via skype is the ceo of an e-book distributor serving in the authors, small presses and literary agents.
a self published author of several books on amazon. you have been supportive of amazon throughout this dispute. what do you think of this latest response? >> i'm happy that amazon is finally talking about what their negotiation terms are. it confirms everything i suspected just from watching the company over the years and dealing with them as an author and publisher. they went through this in 2010, fighting for reasonable e-book prices. back then the response from publishers was to form a cartel and collude with their supposedly competitors in order to artificially raise the prices of e-books on readers in order to protect their legacy print industry, or to make as much money as they possibly could for readers. i think it has been to the great detriment of the authors at hachette that they are fighting
for these higher e-book prices. i'm glad amazon is finally talking. we are in a weird situation where you say hachette has not returned your calls for comment. it is usually the other way around. hopefully this will put some pressure on hachette to come to the table and negotiate. it sounds like they have not been doing that. >> mark, amazon wants 30% and it also wants hachette and the authors to split the remaining 70%, which is different from the way it is today. i believe authors get 25% today. can you explain how this differs from what amazon is proposing and what authors actually take away when they sell a book today? >> some of what amazon is proposing here is a disingenuous smokescreen. if amazon really wanted to offer consumers lower prices, it would be doing other things differently. right now amazon for self published authors
penalizes the author if they price the book under $2.99. you only earn 35%, rather than 70% list. right now amazon makes it really difficult for authors to price their books as free. the only way to price your book at free is to enroll in their exclusive kdp select program. i think this is about amazon gaining control over the price, and control over the e-book margins. if you look at what amazon said in their blog post, they are talking about 70% of revenues. 70% of proceeds. they are not saying 70% of price. what he publishers want is the freedom to set their own prices, and earn 30% list and give the retailer 30% list on e-books. the publisher wants to earn 70% list. it should be the publisher's
decision what they pay the authors. i agree with many of the critics and i agree with you that publishers are not paying their authors enough. they're only paying their authors 25% net, which works out to 12% to 17% of the list price. if you look at what self published authors are earning, they are earning 60% to 80% of the list price as their e-book royalties. there is a big gap here in what publishers are paying and what self published authors are earning. >> now, amazon makes the argument -- they use the price of an e-book at $14.90. they say if they reduce that to $9.99, they would sell 74% more books and bring in 16% more revenue. i want to bring in our editor-at-large, cory johnson, who has been looking at this very closely as well. torrey, is a smokescreen as mark said? >> mark is right to point out how cleverly this is written.
the publishers can do the exact same kind of mass. they have done their own price analysis. price analysis like this is never fixed. they don't know for sure that every title will have the same pricing dynamics. they make it seem like it is math set in stone. the other thing we're doing here is at the end of their note, which i have tweeted out -- it is an interesting one -- they try to create another area of focus, which is how much the authors are getting paid, arguing that the publisher should split 50/50. pointing out that the publishers don't do this right now. getting authors ticked off that amazon is a problem for amazon. amazon is trying to sway their opinion, suggesting there on the side of the authors, and writing that in a blog post. >> hugh, what do you think?
do you think amazon cares more about amazon, or does amazon actually care about you? >> amazon cares about amazon foremost, the reader second-most, and then the author. i have never been treated as well by any publishers as i have amazon financially. it is night and day. mark is trying to make a different argument about e-book ricing, saying amazon punishes e-book prices that are too low. amazon just released a pricing rule. it is not that amazon is just for low prices or higher prices. they are fraught to mull pricing. what they have right now is publishers charging too much for e-books in large part because of protecting relationships with bookstores, with their legacy print industry. i am working with over 30 publishers around the world, and they have told me they cannot lower the price of my e-book because it will upset
bookstores. your expert who thinks that publishers are doing a price analysis and making a logical decision -- that is not how these decisions are being made by publishers. they are being made emotionally, they are made because of existing relationships, because they don't want e-books to gain penetration because it takes that power away. people who think that publishers are behaving logically here in the best interest of authors for readers have not studied the history of the publishing cartel that exists in new york right now. it is not operating in the best interests of its own authors. i hope amazon wins this fight and we get e-books at a reasonable rate. >> a publishing cartel. we will be watching to see how hachette response to this. thank you so much, author hugh howey, mark coker, and cory johnson. could snapchat really be worth as much as $10 billion? alibaba could be ready to invest
>> i'm emily chang. this is "bloomberg west." snapchat is in talks with ali baba group for a financing round that could value the photo messaging company at $10 billion. people with knowledge of the situation tell bloomberg the talks are ongoing. the terms of the funding could change, but if it is completed snapchat would join companies like dropbox, airbnb, uber with valuations more than $10 billion. alibaba group is gearing up for a u.s. ipo and has invested in a number of u.s. companies recently, including shop runner. joining us to discuss from new york is the ceo of tbg digital,
and our editor-at-large, cory johnson. simon, i will start with you. snapchat has no significant revenue that we know of. $10 billion? is that fair? >> it is when you look at valuation approaching 200 billion dollars. it snapchat can take a bite out of that market, $10 billion might be cheap. facebook recently offered $3 billion, which they turned down. snapchat launched a new product, similar to a stream of information that disappears every day. that is getting one billion views a day. the numbers are getting significant. it could be worth the money. >> what do you think, cory? if you compare it to facebook, which tried to buy snapchat for $3 billion, is this a fair price? >> the price is ridiculous. there is no revenue. there is no way to imagine how
there would be revenue. but we have seen this before, where companies are pre-revenue but getting great big valuations. if it happens with this valuation, it would be a bit. let me offer two ways to think about this. one is the size of snapchat. in june, snapchat had 27 million users. that compares to 72 million users on instagram. it is in or mislead popular. a third of instagram already. a lot of messages. numbers i saw from february suggest they are doing 1.5 billion messages a day. a lot of active use. a lot of the users who are not paying anything for it, neither are they seeing any ads. the other thing that is different is that this being ali baba, it might open the doors to snapchat in china, in the way that some chinese blessed companies are allowed to do
business in china, where facebook and google are not. that could make this business a lot more valued thomas sibley by the fact that it is an investment from alibaba. >> it is interesting also because alibaba has stake in its own messaging app. simon, what do you think about alibaba in particular being part of this potential financing round, and how involved they might be? >> as cory said, if they can take snapchat out of the billions of people who are in china, it could be a scary prospect for the networks which don't currently have access there. they already have the investment in we bow, which the majority of it is a decent stake. it gives them a few different bets on -- it is similar to twitter, facebook combination. snapchat is a slightly different approach, where the messages
disappear. it could be huge. >> simon, cory, i want to talk about twitter's big earning report. twitter's monthly active users up 24%, stemming concerns about slumping user growth. twitter also doubling revenue, more than doubling revenue. the stock has gone crazy. cory, are the numbers as good as they look? >> that loss is not as bad as it looks, either. principally stock compensation charges, which is a non-cash item. you saw that expense on the income statement this quarter, as it does every few quarters after the ipo. without that, it would have been profitable for the first time. what you see from this company is a lot of thing starting to take. you saw an increase in the
growth rate of new users. you see an increase in the growth rate of page views. and you see a continued increase in the value of the users. the revenue for 1000 page views hit $1.60 in the last quarter. it was half that a year ago. if the advertisers are getting what they want and paying more for it -- you mentioned the user growth rate changed. 6.3% if the more important number. they put 24% in the press release. when you look at the sequential change from quarter to quarter, you can really see the company kind of bottoming out in december and then turning around. the growth rate of those users is growing a little bit faster now. it was a little bit faster last quarter. >> they have managed to re-accelerate user growth more than 270 million users now. simon, it is all about user engagement when it comes to twitter. what does twitter still have to prove? can they keep this up? >> they just have to keep
continue doing what they are doing in terms of converting the huge awareness that twitter has. everyone knows what twitter is. making the experience better for people, based on what they are interested in. the work to get around the world cup, maybe expanding that to other events that people can really engage and find out information about topics they are passionate about. that is what will convert that awareness into user growth, and that is how they will catch up with facebook him a 1.3 billion users. >> simon mansell at our editor-at-large cory johnson, thank you. what is an entrepreneur to do when he has been fired from his last start up? write a rock album? travel asia and start something new? we will be back and talk about the former groupon ceo's latest detour. ♪
>> welcome back to "bloomberg west." i'm emily chang. could it be a great silicon valley comeback? andrew mason was fired from groupon back in february 2013 after shares plummeted by 80% after the ipo. since his departure, mason has been doing some traveling, side projects -- but he has also been working on a new location-based audio tour app called the tour. brad stone went on a tour with andrew mason to find out what he has been up to post groupon. it sounds like he was quite entertaining. i would expect nothing less. do this eagles really you know what? [laughter] >> as we were doing when these detours in fisherman's wharf, the great san franciscan tourist neighborhood, walking, listening
to the tours -- you go to a specific area. a fisherman is talking. he is very earnest about this experience. andrew mason has a great sense of humor and dealt with it gracefully. not the most dignified thing. >> audio walking tours. why? >> it is a big market. there are a lot of these apps. other people have tried it. andrew, who was all it groupon about getting people out of the house and getting to experience their city in new ways, is riffing on his idea in a different way. he has a former -- couple former groupon engineers working on it. they think location-based phones, gps, all these things can create a better experience. we will see. it is not just walking tours, it is entertainment grade we did a tour of the tenderloin and john parry barlow narrated, the grateful dead lyricist. he talks about the hots he likes in the tenderloin. we will see when detour opens up
the marketplace and allows people to contribute, how big it can be. >> my last encounter with andrew mason was chasing him around times square. the bad publicity had already started. what is his post-groupon view? what does he have to say about it? he was pretty up front when he was fired. >> that's right. he takes a lot of the blame for what went wrong. he says primarily that they went public way too early. rapid growth company. hundreds of millions of billions of revenue in one year. they had new organizational problems. to try to figure that out in public is hard. what you want to address is the relationship with the board. he says, we are great friends. but it is clear that he is joking, and there is tension in that relationship. >> he made $400 million off of this.
why bother? it seems like he is well-connected with some of the bigwigs in silicon valley. he still has got at least a good reputation among them. >> yeah, and i asked him why do this. he said, what else should i do? he is still an innovator. he is young. i don't think it is a quest for redemption. it is like he's trying to build something that enlivens their city. he talked about oculus rift, and he demoed it. he said, when it comes out there will be no reason for us to ever leave our living room. he wants to get detour out and succeeding before we all disappear into virtual reality. >> that is a good point. we will be watching, and maybe listening to his album of work songs -- hardly working. he actually made an album. >> that's right. it is not clear how tongue-in-cheek that was. he called the best thing he has ever done. >> all right. brad stone, thank you. tomorrow is a big day for edward
>> you are watching "bloomberg west." i'm emily chang. this half-hour, we are taking an in-depth look at the impact edward snowden's revelations about nsa surveillance have had on business tom e-government, and consumers. we are looking into what it has meant to your privacy rights and how the news about bulk phone record collection, internet wiretaps and more has changed the business practices of technology companies and the broader corporate world. first, it was a little over a year that snowden first exposed the spying tactics employed by the u.s. government. how there is an nsa reform bill in the senate that has already passed the house. this legislation would stop bulk data collection and force stricter requirements from gathering at, and and metadata
collection from phone calls. the bill has plenty of supporters in the tech community, including yahoo!, google, facebook, and apple. here is what those ceo's have had to say about nsa surveillance. >> we need to be significantly more transparent. we need to say what data is being given, how many people it affects, how many accounts are affected. we need to be clear. we have a gag order on us right now. we can't say those things. >> do you know google is quite a post along with the other tech companies to what we see as overreach by the nsa, and we all think that bugging angela merkel's phone is pretty stupid, if i can be blunt. >> number one question from google. >> don't do stupid things. that does not mean we don't need to have a system of surveillance, because we do. that has to be accepted. >> if you don't comply, it is treason.
>> much of what has been said is not true. there is no back door. the government does not have access to our servers. they would have to cart us out in a box for that. that just would not happen. >> they did not knock. they did not call. they did not send a letter. they just visited. [laughter] >> what request would you make to president obama? >> transparency. so we can help our users understand exactly how many requests we are getting, and/or the range or types of request as we are getting, and how those requests will be used. >> the nsa issues are a real issue, especially for american internet companies. trust is such an important thing when you are thinking about using any service where you are
going to share important and personal information, and we continue to work to make sure that we can share everything that the government is asking of us. >> do you feel the trust has fallen because of this? >> yeah, i definitely think so. and not only within the u.s., but internationally. certainly there are other countries that have concerns about what the nsa is looking at. transparency is something that would really ultimately help us. >> it is my job and our job to protect everyone who uses facebook and all the information they share with us. it is our government's job to protect all of us and also to protect our freedoms and protect the economy. i think they did a bad job of balancing those things here. frankly, i think the government blew it. >> mark zuckerberg thinks the government blew it. all of this coming as edward snowden's asylum in russia is set to expire tomorrow.
will he be granted an extension? cory johnson is in new york and joining us via skype in miami is the ceo of immunity, a software security company who is also a former computer scientist for the nsa. thank you for joining us. what do you think? will snowden be rented an extension in russia? >> i would say of course he is. the russians do not want to set a precedent that they can take in someone like edward snowden with reams of classified information in his head and eventually turn him away to the whims of the american prosecutors. realistically, there is no way that snowden is not going to be granted some form of continuing asylum for the rest of his life. >> what do you imagine the nsa's interest still is in making some kind of deal for his return, and the white house's interest, for that matter? >> it is really not just the nsa.
it really does come down to the whole intelligence community. they still say they don't know exactly what he took. they don't know who he gave it to. a lot of what edward snowden says is definitively not true about who he is giving this information to. we know for a fact that he went and gave the chinese newspapers in hong kong a lot of information, possibly very specific information about what servers in china and around china the nsa had access to. and things like that, the specifics of what he gave, are still very interesting to the nsa. at this point, they must be partially through their damage control, and they must have some idea of how badly they were hit. >> there is also an interesting notion that germany -- they are interested in having him testify about u.s. spying on german officials in germany. the notion that he might even be granted immunity there. there is some movement afoot to see that happen. is there any possibility of that?
>> i don't think so. the germans are a very tight ally, even despite their continual reaching with russia. the fact is that germany already has a very tight intelligence association with the united states. there is no way edward snowden would be foolish enough to venture off into western europe, a place where the united states has deep economic and political ties. he will stay in moscow. he will probably be in that apartment in moscow for the rest of his life. >> there is still a giant discrepancy between what snowden revealed and what the tech company ceo's are saying. when you hear tim cook say there is absolutely no way that they have a backdoor to apple -- they would have to cart us out in a box before that happened -- who can we believe? >> the reality is a lot of that is marketing. a back door is very specific language. what they are trying to say is that there are these classes of things they would not do for the
government trade but we are definitely not going to tell you about all the classifications of things that we will do and have done in the past for the government. when they say a back door, it is very specific language. what it does not do is provide transparency on their part for what it is they are willing to do for the government. the prism 702 regulation forced their to do some things, but they cannot say there are other connections. this is probably one of the things that has made it very difficult for them to regain the trust that they really need to do to penetrate the international market. we saw cisco taking massive hits all last year, and it came down to layoffs. there are a lot of american companies really hurting because of some of these revelations. it is largely default. >> there is some nuance in what the ceo's are saying. eric schmidt told me that they did not call, they did not write, they just visited. and you have tim cook saying, this never happened. is somebody lying here?
are these ceo's lying to us, their users? >> they are being very cagey with their words. it has been and continues to be in their best interests to cooperate as much as they can with the u.s. government. the u.s. government is one of their very largest customers. obviously they will get special preferences and ask for special favors. on the other hand, it makes it harder for them to look at the rest of the world market, which is where the growth is. they have to somehow establish trust in the rest of the world market. what they do not want to see is the internet vulcanized so they only have access to the friendly u.s. countries and they cannot go into china, they cannot go into india. they see that as a possibility. when eric schmidt comes to you and says, i'm not fond of the u.s. government and what they have done to my company -- we are talking about a company
where largely the connections between them and the nsa are probably not things they want you to know, but that does not mean that they are not very valuable for their business. >> right. and all of these companies do spend a lot of money lobbying in washington. what about this bill that passed the house in the senate to stop bulk data collection? do you think this will pass? will this make an actual difference, or is the nsa going to keep doing what it has been doing? >> i thought it was very interesting that you said it. all it does is move the puck slightly to the right and keep data collection in the hands of the telecommunication companies. it has been a weird part of the national discussion that americans are very upset about the government having access to this information. they are perfectly ok with verizon, at&t and t-mobile, which is a german company, having all access to this information. the bill itself -- the senate is
sort of gridlocked in a very unfortunate way. it may or may not pass. i do not think it will make a difference either way. >> dave aitel, former nsa computer scientist, thank you so much. we are awaiting word as to whether russia will extend edward snowden's asylum, which expires tomorrow. speaking of privacy, should your e-mails have the same privacy protections as letters sent to you in the mail? microsoft think so. we dig into this story with microsoft's general counsel coming up. ♪
what are the potential privacy risks involved? joining me now is the cofounder and ceo, and our editor at large. how does this work? i can tell when my husband leaves work? >> we don't like to think of ourselves as a tracking app, we are an app that makes communication easier. >> location sharing is core to it, but when people think tracking, they think big brother. we just give alerts when someone leaves an office. the word tracking almost never comes up, it is about peace of mind, making lives easier. sometimes there are skeptics.
but try with your family and see. >> it is something that can be very valuable. if the government wanted to find you. >> in terms of government sharing without a legal subpoena, we do not share information,. period. a massive storing database that can later be used for nefarious purposes. it is very tightly controlled, so far we haven't had any incidents. >> there are other apps that do this. why wouldn't apple and google and android do this themselves in a bigger way? eventually sharing is going to be a commodity. it hasn't worked very well for apple and google. we focus on the family d.efault. what we found his location sharing is very powerful, and useful for small circle of
people. there are only a handful of youre -- your babysitter, best friend -- that it is relevant for. >> friends and babysitters -- do you imagine a business, an enterprise version of this? >> there could be plenty of enterprise versions. we are not focusing on that. we are all about the family and people in your close circle. tracking,agine fleet even for schools. parents and kids on field trips. overall, location is going to be a core feature on every app and service we have. >> after hurricane katrina -- what about an emergency? if there is an emergency here in california, how do we communicate with each other, especially if services are disrupted? >> in major disasters, voice
itmmunication usually gets -- is very reliable and robust. users use us after tornadoes. our app even worked when you could make a phone call. what most people are using our phone call is to say i'm okay rather than i need help. in disasters, most people are ok, and the challenges reconnecting with your family. >> how do you guys make money? >> we are making money by selling piece of mine services. -- mind service. we are focused on becoming a family app. we recently partnered with at&t. likee going to do things connect to your home where we
can have your doors automatically lock, thermostat turns down, all automatically based on the location -- based on the location of your family members. >> interesting stuff. ceo of life360. microsoft is going to court over your right to your own e-mail. we will speak to the microsoft general counsel, next. ♪
>> i'm emily chang. this is "bloomberg west." we continue our look into privacy and how much life has changed for business, government and consumers since edward snowden's revelations. microsoft general brad smith says, the u.s. government cannot force american tech companies to turn over customer e-mails stored exclusively in company data centers in foreign countries. microsoft argued that very point at a hearing in federal court
tomorrow. we are joined by brad smith, microsoft general counsel and executive vice president of legal and corporate affairs from company headquarters in redmond, washington. thank you for joining us. this all came out of a specific government request. tell us what exactly was the government asking you to do, if the government asking you to do, and why are you against it? >> the u.s. government is seeking to serve a search warrant to obtain e-mails in our data center in dublin, ireland. the point we are making is that we believe that the e-mails that you store in the cloud are entitled to the same kind of legal protection as the information you put on paper. the government can serve a warrant, but a warrant only reaches the united states. it does not reach another country. one of the concerns we have is if the u.s. government uses warrants to reach into other countries, other countries are
going to do the same thing. the british government has already moved in this direction. we know that the american public does not want its e-mails stored in the united states to be subject to warrants served by other countries. everybody wants their own laws to apply. >> the government says it is in the interest of public safety. how do you respond to that? >> public safety is important. that is the first thing we need to underscore. we need a world in which public safety is protected, people's privacy is protected, and technology can move forward. there are ways to do that. this is in ireland. the u.s. has a good treaty with the irish government, law enforcement worked together all the time -- if the u.s. government wants to access data in a data center in ireland, the proper approach is to go through that treaty, work with the irish law enforcement, and then get that data under irish law so it
can be turned over to law enforcement authorities here in the u.s. >> earlier this year microsoft got a lot of heat for reading an employee's hotmail account, or reading an e-mail from a hotmail account in order to track down a microsoft employee accused of corporate spying. i know you changed your terms of service after that. we have been talking about the relationship between the nsa and government and technology companies. how can we be sure you are not going to snoop in our e-mails? how can we be sure there is not a double standard? >> the first thing we need to do is be principaled. that is what we believe we need to do at microsoft. i think you are seeing this in other tech companies as well. a first principle here is that people's text messages, instant messages, voice conversations, e-mails, the documents they store all are entitled to strong privacy protection. we believe at bottom, people will only use technology if they trust it.
so let's ensure we are creating processes that are worthy of that trust. when the question arose as to what some of our investigators were doing, it crossed my desk, it just took a day to say, this is not what we should be doing. this is not what the government should be doing. let's be transparent with the public through our terms of service. let's change our terms of service so that people have confidence in us, and we hope in others too. >> john chambers has been courageous enough to come out and say that the nsa's policies are hurting cisco's business in china. what has the impact been on microsoft's business? >> i believe it is a problem for all of us in the tech sector. it's a problem for us, it's a problem for other companies that are focused in particular on cloud services or devices that connect to the cloud. it was definitely brought home to me when i was in europe in may.
people look for precise numbers. i don't know that we can quantify it that precisely, but i remember having a cio from one of the german states look me in the eye. he held in his hand the decision that had been issued by this magistrate in new york that had to prove the government's warrant that we are now contesting. he said to me, if this decision is not reversed, there is no way that my state government in germany will ever be able to put any of its information in a data center run by any american company. it is a simple as that. i was one person, one day. but we are seeing this around the world every day. >> brad smith, executive vice president and general counsel. you will be in court tomorrow. cory johnson, our editor-at-large, thank you as well. thank you all for watching this edition of "bloomberg west." get all the latest headlines on your phone, tablet, and bloomberg.com. ♪